: Often called "junk bonds," these are unsecured and carry higher interest rates due to increased risk.
: Secured by assets and paid first; carries the lowest interest rates.
: Ideal candidates are mature, stable businesses in non-cyclical industries with strong, predictable cash flows and low capital expenditure (CAPEX) requirements. Common Financing Instruments leveraged buyout
: The "leverage" comes from using a small amount of equity—typically provided by a financial sponsor like a private equity (PE) firm—and a large amount of debt.
The "capital stack" in an LBO is often layered by risk and repayment priority: : Often called "junk bonds," these are unsecured
: The assets of the acquired company (and sometimes the acquirer) serve as collateral for the loans.
The ultimate goal of an LBO is to realize high returns—often targeting an of 20% to 30%. Understanding the Leveraged Buyout Model - HBS Online Common Financing Instruments : The "leverage" comes from
LBOs are defined by their unique capital structure and the use of the target company's own assets to facilitate the purchase.